Facing crippling health costs, Alaska looks for solutions

One option: Plane tickets, hotels for those going south for cheaper care

Alaska is looking at some aggressive steps to hold down rising health care costs for state government, with Parnell administration officials saying they fear even the nation’s wealthiest state won’t be able to afford them in the future.

“We have to raise awareness that the state can’t afford to continue to see the kind of cost escalation we’ve been seeing,” said Becky Hultberg, commissioner of the Department of Administration.

Her department spends $600 million a year on health care for active and retired government employees, putting her in the forefront of efforts to limit those costs.

In addition, $4.1 billion of the state’s $11.1 billion in liability from the state’s underfunded retirement plans is due to health care costs, she said.

Now, the state is looking at some increasingly tough measures to hold down the big bills submitted by the state health care providers.

Among the possibilities is expanding its “preferred provider network” to steer employees and retirees towards those providers who give the state better deals, or who do a better job of treating patients.

And a potentially even more controversial move would be to provide incentives for patients to go to the Lower 48 for the dramatically cheaper health care that’s available there.

One particularly bad example, said Mike Barnhill, deputy commissioner of the department, is a kidney stone fragmentation.

It’s $2,000 in Washington and four times that in Anchorage, Barnhill said, and that’s just for physician’s fees, not counting hospital costs.

“Generally you’ll see higher costs across the board, but specifically in the area of specialists they were significantly higher,” Hultberg said.

And rates this year went up an extraordinary 13 percent, Barnhill said.

In an effort to hold down costs like that, the state is now considering sending people south for care.

“Sending people out of state for care is one of those alternatives, and we are actively exploring it,” Hultberg said.

Most in the state’s health care community are not yet aware of the new proposals made by one of their most important customers.

Hultberg said that she and Commissioner Bill Streur of the Department of Health and Social Services recently briefed the Alaska Hospital and Nursing Home Association of the state’s increasing concern with rising medical bills. That discussion touched on ways they might control those costs, she said.

The presentation resulted in an invitation from Providence Alaska Medical Center, the state’s largest hospital, for a meeting with Hultberg and other state officials this week.

Bartlett Regional Hospital Interim Chief Financial Officer Dennis Stillman said he’d not heard about the proposal, but found it troubling.

“I would hope they would talk to us first,” he said, before implementing such a plan.

The state of Alaska is a particularly important customer for Bartlett due to the large number of state employees in the capital city, combined with other industries that often don’t provide health care.

Alaska already pays for plane tickets for when a service isn’t available in Alaska, or when an employee chooses cheaper care outside Alaska. One way to expand usage of the cheaper care would be to provide other travel costs, such as housing and companion tickets that might provide and incentive to go south for care, Hultberg said.

Department of Revenue Commissioner Bryan Butcher said the threat of losing patients could also push back on rising medical costs statewide.

“I think that might also give positive pressure towards the explosion of costs if there is an alternative for Alaskans other than paying whatever’s being presented to them in their particular communities,” Butcher said.

Hultberg said that while the state wants lower costs, it’s not trying to be confrontational and wants to work together on a solution.

“It’s really our goal to work with the provider community to help address this issue, but it is important to realize that the rate of growth right now is not sustainable for the state of Alaska over the long term,” she said.

The state also used a preferred provider network as a way of cutting costs and improving care, but the network is not available in many places. In other cases, the incentives for use or disincentives for failing to use aren’t persuading members to use the network, Barnhill said.

“We have a network now, we’re just looking to expand it,” Hultberg said.

The department plans to issue a request for proposals for a new third-party administrator this summer, with one of the goals a proposal to increase network usage.

Barnhill described the out-of-network usage for retirees as “just way, way too high.”

The department is already working on the other side of cost control, expanding wellness programs to try to keep employees healthier.

And the state is aware of the impact the changes it is considering could have on hospitals and others, and will be cautious about changes that might damage them. Hultberg herself worked at Providence before joining the Parnell administration.

“I think it is to all of our benefit to have a healthy medical system in the state, I think that’s undeniable,” she said. “But I also think it is undeniable that we can’t continue to see the cost trends and cost increases that we’ve seen,” she said.